Alivus Life Sciences Limited (ALIVUS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Glenmark Life Sciences Limited Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Soumi Rao, General Manager, Corporate Communications at Glenmark Life Sciences Limited. Thank you, and over to you, Ms. Rao.

Thank you for joining us early this morning. We welcome you all to the Q1 F '22 earnings call of Glenmark Life Sciences Limited. This is our first earnings call post the listing. Today, we have with us Dr. Yasir Rawjee, MD and CEO, Glenmark Life Sciences Limited; and Mr. Bhavesh Pujara, CFO, Glenmark Life Sciences Limited. As we begin the earnings call, here is a review of the operations of the company. For the first quarter ended June 30, 2021, Glenmark Life Sciences registered revenue from operations of INR 5,249 million, recording a Y-o-Y growth of 32.2%. EBITDA stood at INR 1,644.4 million for the first quarter of FY '22. EBITDA margin for the quarter was at 31.3%, similar to the margin profile for the whole of FY '21. Profit after tax was at INR 1,009.1 million, registering a growth of 24.5% against the first quarter of the previous financial year. The company's gross debt comprising of outstanding purchase consideration payable to the parent company was at INR 8,008.3 million as on 9th July 2021, and it has repaid the whole of this outstanding amount pursuant to the funds raised -- sorry, pursuant to the -- through the IPO, sorry -- pursuant to the funds raised through the IPO. Working capital as on 30th June 2021 is at INR 9,089.4 million at 158 days on sales, improving from 176 days at the end of the financial year -- at the end of the last financial year. Now coming to the company's business performance. Revenues from the Generic API segment increased 38.3% Y-o-Y to INR 4,803.4 million during the quarter. This was driven by growth across all geographies. Key markets contributing to the growth are Latin America at 94.4%, North America at 45.1%, and Rest of the World at 52.6%. The company's CDMO revenues registered a Y-o-Y fee growth of 11% at INR 388.9 million. This is mainly due to phasing of orders by customers, which is in line with our expectations. We expect a stronger sales trajectory from the next quarter. The company's regulated markets account for 67% of net sales in Q1 F '22, growing at 30.5% Y-o-Y, while emerging markets account for 33% of net sales in Q1 of F '22, growing at 37.6% Y-o-Y. Products from key chronic therapeutic areas such as CVS, CNS, diabetes, pain management accounts for 36.1% of net sales in Q1 F '22, growing at 24.3% Y-o-Y. Amongst other operational highlights, the company filed 9 DMF/CEPs across major markets, that is United States, Europe, Japan, Russia, Brazil, South Korea, Taiwan, Canada, China and Australia during the quarter, and the cumulative filing stands at 407 as on 30th June 2021. During the quarter, the company spent INR 185.4 million towards capital expenditure. In the Generic API segment during the quarter, the company continued development of its complex portfolio with strong progression of 4 iron complex molecules and 4 oncology molecules. The overall end market opportunity for these 8 molecules is more than USD 15 billion. With that, I would now like to invite Dr. Yasir Rawjee, MD and CEO, Glenmark Life Sciences Limited, to say a few words before we open the floor for the Q&A session. But before I do that, I'd like to read out the disclaimer. Some of the information in the document, especially information with respect to our plans and strategies may contain certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts and assumptions that are subject to risk and uncertainties, which could cause actual outcomes and results to differ materially from the statements depending upon the economic conditions, government policies and other incidental factors. Such statements should not be regarded by recipients as a substitute for the exercise of their own judgment. The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. Thank you.

So Soumi, thanks for the introduction. Good morning to everybody, and thank you for getting on to the call. It's our first -- it's our very first call after the listing, so it's going to be interesting, I'm sure. But welcome to all of you, and I hope everyone is staying safe, your families are safe, and we are going through this pandemic in as safe manner as we can. Now coming to Glenmark Life Sciences, we have had our challenges with respect to dealing with the pandemic. So if I dial back a year ago, we were hit with the first wave. And that was the time when we had to deal with a lot of uncertainty across, whether it's related to people, their safety, what kind of protocols we need to put into place, how we need to operate the factories efficiently and how the material movement is all going to work out. So I would say that, that was a big learning, and we spent some time fine-tuning things. And fortunately, for us, when the second wave hit us earlier this year, we were much better positioned to take care of the challenges that -- and there were bigger challenges this time. But the fact is that we were positioned well because of the learnings of last year. And as a result of which we've kept the operations pretty much under control with respect to people, how we keep our people safe, both at home as well as work and how that all translates to a smooth operation. And with respect to materials as well, there have been challenges both with respect to exports, imports rather, imports, exports as well as internal material movement. And that, again, has been dealt with in a very smooth fashion. So overall, I would say that things have worked well for us in the second wave, and we've been able to ride through this difficult period fairly well. Now coming to the IPO, I mean, you all know the numbers, right? The IPO was subscribed many times. And we'd like to thank the entire investment community, all the investors, the retail investors, the QIBs and everybody for participating because it gave us a huge vote of confidence on the business on our ability to take the company forward. So thank you once again for being there for us, and we'll make sure that we deliver to you as promised and hopefully even better. So let's come now to the business real quick, okay? So this is the first quarter of FY '22, and it's our first earnings call with analysts, right? And whoever gets on to the call. So basically, the quarter has been a very solid quarter. We had 32% growth, like Soumi said. We had this on the back of a very strong generic demand that came from across geographies. Our CDMO business was a little bit lower than what we saw last year. But then that's something that is expected. It's not something that we don't expect that will happen, okay? Because we don't see in any of our businesses a sort of very steady quarter-on-quarter demand. So it's a function, I would say, of the business and the way the customers face in their demand. So overall, the business has been very strong. And we believe that given the kind of demand that we are seeing across geographies, this business will continue to remain strong. Now coming to execution. Let's talk -- I would like to split this up into 3 parts. So we'll talk about short term, long term and midterm. So on the short term, I think our priority for execution is to stay focused on customer service and being able to deliver to the customer because in times like this, that's what the customer expects from us is to continue to service their demand consistently with good quality and not fail them in any way. So that's something that we have, like I said, done by keeping control on the way we handled all the issues related to the pandemic. And that is something that will continue. When it comes to midterm, there are a couple of priorities. One is related to R&D, and that is that we continue to make sure that our filings happen on time. And these are not only the new filings, but even the cost improvement projects that we have taken up, and we continue to deliver on the R&D filings. Apart from that, we need to stay focused on the long term as well. Now you would know that we have embarked on 2 projects for capacity expansion. One is a brownfield expansion and the other is a greenfield expansion. Now the brownfield expansion is well underway. We have got 4 modules that are being built up in 1 plant, 1 independent plant in Dahej, in our Dahej hedge facility. And this will -- the first module will become operational in quarter 4 of this year, and all 4 modules are expected to become operational by quarter 2 of next year. The greenfield expansion is something that is going to start in -- after we get clearances in October or November of this year. And this will basically start getting operational in quarter 4 of next financial year FY '23. So these are the 2 long-term priorities that we stay focused on. And the last one is to ensure that our supply chains remain robust and continuing to operate in a way that we continue to service our business. So I think I will stop there and open it up for questions at this point, okay? So thank you very much again for joining the call, and we look forward to taking your questions.

[Operator Instructions] The first question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, just because this is the first call and since you talked about near term, medium term and the long term, if you can help us with some of those key business metrics because, for example, ROIC, I find it to be higher 35%, 33%, which looks to be on the higher side compared to other players. Similarly, the asset turnover. So if you can give us some expectation of what's the sustainable business metrics as we are building on in terms of the return on capital employed, margins, working capital days and asset turnover.

Okay. Let me hand that over to Bhavesh, right? He'll give you the numbers and also basically explain what is it that we are going to be doing so that we try to keep these numbers as consistent as possible going forward because there will be fresh investments. And obviously, that is likely to move things around. So Bhavesh, will you please give a sense in terms of what -- how we are going about?

Sure. So Sarvesh, to your -- first part to your question, so I think the nature of business is quite differentiated, particularly kind of the API product portfolio space that we operate in. So we predominantly deal with high-value APIs, our revenue-to-tonnage ratio is relatively higher when you look at some of the other players in the industry group. And that means our -- let's say, on an average, we have our APIs in the range of $200 a kg to almost $800, $900 a kg. And what it does is that it gives us more turnover for unit of investment as well. So that is the aspect around the high FATR that you asked about. The second aspect is the combination of high FATR and high EBITDA margins in turn leads to over 32% plus kind of ROCE for us. So that's the mix here. Our focus is going to be continuing in this space. As we branch out our product portfolio into the complex platform, this will further strengthen the profile. On the middle line front, we continue to focus on working on cost improvement projects. So any pricing pressure that we might encounter is subsequently offset, that has been our track record so far. And that's how the entire return and profitability indicators are stacked out. The working capital cycle, there has been a continuous improvement that you could see from the numbers that we have given in the prospectus and then you can see our quarter 1 results as well. So right now, we are operating with a working capital cycle of about 158. Going forward, also we would like to stick to this 150, 155 days kind of range. Now as we expand in the form of additional investment, right, so we are going to focus on building some additional R&D capabilities and manufacturing capacity expansion, there might be a slight dip in the -- [indiscernible] dip in the fixed asset tonne. But with the working capital cycle improving, I think our ROCE profile should still remain robust at 30% plus level going forward.

Understood. And secondly, with this expansion that we are undergoing, so one of the problems which may occur when you are focusing on very high-margin products is that the scalability might be limited. So now that we are expanding significantly, do you see that there is enough opportunity in the spaces that you operate? And secondly, if you can give some sense of the time line by which we can get 100% utilization on the brownfield and the greenfield?

Okay. So look, as far as expandability of the -- into the new facilities, right, and at the product level, what -- the good part is that our brownfield has already been inspected by the U.S. FDA, right, and other agencies. So anything that comes in these facilities is basically going to be a very simple kind of variation approval that we go through in order to bring these facilities online. So that would be relatively straightforward. Now obviously, coming to the greenfield, that would be -- like Bhavesh said, that would take -- there would be a little bit of a time lag. But then we have a significant emerging markets business also, and we would be looking at bringing in, executing that business from the greenfield site.

Yes. And if you can comment on the scalability? As we scale further, will we be able to get the same high margin profile that we have for our current business, high margin, high revenue per tonne business?

See the -- basically, the high margin comes from the fact that our portfolio is pretty well differentiated, okay? Plus, the geographies in which we operate, being highly regulated geographies basically do not bring us into this highly sort of commoditized play that usually happens in markets that are -- the less regulated markets. So as long as we keep our geographic focus in these markets, right, we are likely to see a margin profile that is going to be sustained going forward. Now your question probably relates also to taking a higher market share, right? So in cases in products where we are at a lesser market share and want to grow our market share, will we sort of do it in a way that sort of -- we will take market share at the expense of margins. I think we would be judicious, Sarvesh, in doing that rather than sort of jump in and just take market share in there just because we are scaling up. We've got enough depth on the product pipeline, not to need to do that.

[Operator Instructions] The next question is from the line of Tapan Modi, retail investor.

Yes. Very good morning. First of all, I would like to know what is the percentage of R&D spend vis-à-vis the revenue for the first quarter?

Okay. It's just under 2%, Tapan. R&D spend for this quarter was just under 2%.

Okay. And what is the expected future spend?

Typically, we operate between 2% to 2.5%. This year is probably going to look like that. It went on -- we've been operating at around just over 2%. Because of a relatively high revenue this quarter, it dipped to about 1.8%. But typically, we would be between 2% to 2.5% this year. And then going forward, it will probably inch up to around between 2.5% to 3%. But it will not exceed that.

Okay. And basically, this quarter had a generic growth of around 38%. Are you expecting the same trend to little continue for the generic or is it due to the lockdown impact last year, so the figures are in little higher side?

Okay. See, the lockdown impact of last year -- I think you're referring to the thing about people building up inventories and stuff, right? So I don't think it has anything to do with the lockdown last year, okay, in terms of this demand being so solid because people don't continue to keep inventory for 4, 5 quarters in a row, right? Obviously, they build up inventory and then they kind of go flat with respect to how they build their demand going forward. But with us, we have seen, like I said, a pretty solid demand across geographies, and we hope that this will continue. We believe that there are very good reasons why this should continue because there is this China Plus One that is very real and we are seeing robust demand on the back of this kind of mindset on the part of the customer. So this would continue, I believe. And again, like I said, we've had very solid growth across the regions, and this demand is likely to stay.

Okay. And the last thing, wanted to know about the new customers for the current quarter and the revenue breakup by top 10 customers are of more than 50% revenue contribution.

Yes. Well, new customers might be -- I mean, we might have to come back to you on that, right, in terms of what new customers we had this quarter, right? But we do keep adding customers in various geographies. So that would be there, and that does drive our growth, okay? With respect to the customer concentration, yes -- you talked about product concentration, right, or customer concentration. So we do have -- I'll anyway tell you both, right? We do have a fair amount of customer concentration, right, because we deal with top customers who take -- who are -- who take multiple APIs from us, and they are engaged in multiple projects for quite a few years now. So our top 10 customers account for about 60%, 65% of our business, okay? And in terms of products, a very similar kind of thing is there, where our top 10 products account for about, again, about 60%, 65% of our business. Now I think that's a good thing because we have a whole lot of customers after these top 10 that also contribute quite significantly. And at the product level also, we have a pretty deep pipeline. And so as newer and newer products come in, a product that is today at top 10 might drop to less than -- might drop to #11 or #12, but then another product will come in and take its place. So that's the advantage of having a very strong and deep pipeline.

Okay. And what's the percentage revenue from the group company Glenmark for the current quarter?

Yes. The percentage revenue was 40% this quarter from group company.

[Operator Instructions] The next question is from the line of Surajit Pal from Prabhudas Lilladher.

So what you were saying is that you have a strong demand traction and you don't see that last year [indiscernible] pandemic you not have any reason to believe about the growth of [indiscernible] of generic growth. So do you like to say in a way this kind of 35%, 40% growth is sustainable for your business projects of the quarters?

I would not give a number, right? But I can say that whatever we have seen, okay, if you look from the time the pandemic started, okay, is that the growth has been good, right? If you go back and look at our last year, we did 22% growth. Now -- so from a demand perspective, things have been very strong, okay? And that has -- we have seen across now 4 to 5 quarters, right, including this quarter. Is it something that will be consistent across quarters in terms of number? I don't know. It's unlikely, right? Because in our business, right, we have -- there is a bit of a -- I would not say cyclical, but yes, the demand -- the demand does go up and down. So it's likely that in the next quarters, we may not see 30%, 31% growth. But over the year, we could -- we are looking at about 16% to 18% growth on our business.

Yes. So basically, that is [indiscernible] 30%, 40% kind of growth may not be [indiscernible]?

Sure.

When you say you have a differentiated product in [indiscernible] because we know that API is pretty easily copyable by the peers [ really fast ] even in 6 months, the reason I believe flooded the market with cheaper version. So I just need to understand 2 things. One thing is that what could be the contribution of top 5 molecules and the name of those top 5 molecules is [indiscernible]. And second thing is that what could be this molecule stay in top 5, typical time period to stay in top 5?

Okay. Let me answer that first question, okay? In terms of anyone being able to make these molecules, see, in our business, right, it's not just about making the molecule and the chemistry, right? It's about positioning yourself in a market. When you look at regulated markets, and that's where our concentration is, okay, you not only have to have the technology to make the molecule, but then there are a whole bunch of other things that goes in to then demonstrate to the health authority like an FDA or European authority that this molecule, which is an API can go into the drug of a customer. And this is not a simple matter, okay? So I'll put it to you in a different way. If you do a Google search, right, on our molecules, you can look at any of our molecules on our website, right? You do a Google search, you'll find 10 to 12 players or even more doing these molecules. Now are all these molecules -- all these players who claim to make these molecules, will they operate in the regulated market space? Very unlikely, because just to give you an idea, to file -- to file a single API in a regulated market, you need to make about 50 to 80, sometimes even 100 impurities. Every company cannot do that. Every company cannot do that. I can assure you. So it's not a simple matter that you just make the molecule and then you manufacture and then you're able to sell in the market. I mean maybe it's possible in some markets, but it's obviously not possible in those markets where we operate. So from the stability perspective, our business has got a lot of stability in terms of our customers having the trust on us that, look, we -- we not only will deliver API, we do it consistently, but it will be of a high quality, consistent quality and it will come with all the documentation and all the support that is required to be able to satisfy the health authority of that country, that we are able -- our API is fixed for the drug in that country. So I hope, Sujit (sic) [ Surajit ], that answers that part of the question. When it comes to molecules, right, I can tell you what our top 5 molecules are today. But what our top 5 molecules are today would not be the top 5 molecules next year, right? Because there would be newer molecules, like I said, that would continue to help growth and continue to add. But just to give you a sense in terms of what are our top molecules. So we have rosuvastatin. We have olmesartan. We have atovaquone. We have perindopril. We have telmisartan. We have oxcarbazepine. These are some of our top molecules.

So you said that on an average, the top 5 molecules stay at top 5 is generally around the 12 months' time? Or how long -- these are the names which you have taken they are in top 5 [indiscernible]?

No, can you repeat that? I missed the question.

How long these top 5 [indiscernible] name has been there in top 5 [ grid ]?

See, that's relative to us, right? So today, what I named have been top 5 molecules, right, for some time. Now another couple of molecules that we know are growing very nicely, right, very -- in a matter of 6 months to a year become #3, #4 and then what is today #4, #5 will go down to #6, #7. That's how it happens, right? So that's the -- because see the molecules that we have commercially even today also keep growing as we expand geographically and the customer base.

Yes, I clearly understood. I just want to have an idea is that there are various kind of companies, the kind of companies we could found out pharma is that -- the complex molecule have been staying for 3, 4 years, 5 years also in generic space. And some of the companies, they were -- they are churning out very fast. So they don't care. They are not going to stay as the top 5 molecules. In top 5, they would be generally an year. So what would be your average stay of the top 5 molecules in top 5? That I need to understand because I need to understand... [Technical Difficulty]

The line of the participant dropped.

Okay. Sure. We can take the next question.

[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital Advisors.

Sir, 2 things. One is at a broader level, see the management team in GLS, you've been around for a couple -- a few years now. The management team has also -- there has been a lot of management changes, which have happened in recent times. In your own assessment of, I mean, what are the changes that the business has seen over the -- over the last, say, 2 or 3 years and what implication does it have for -- in terms of future growth trajectory of the business? You can probably just give us some...

Sure, Nitin. Okay. So talking about the management team first straight, yes, I've been here since 9 quarters, okay? So I'll just finish 9 quarters. This is my 10th quarter, okay? And we needed to build a newer team because we needed to give this business a very strong focus, an outward focus, okay? And in order to do that, I mean, the team was built. Now what has happened in the last 2.5, 3 years is, let's start with R&D. So we've sort of got our portfolio, right, to become, I would say, a much more productive portfolio going forward. We had a pretty good portfolio and our R&D team was doing a good job, but it was pretty spread out, okay? So the launches that we would have seen from our portfolio earlier were happening -- a lot of them was going to happen in '31, '32, '33, okay? This is the year 2031, '32, '33 and even beyond. So now that did not make sense to us, right, when we relooked at the whole thing. This was about 2.5 years ago. And we said, okay, let's just go and focus on a portfolio that we will be able to launch in the nearer term, okay? So let's look at molecules that we can bring in, in '23 to '26 time frame and even earlier if possible. So that's one change we made, right? The other thing that we also did in R&D, it's got a lot more focus on the cost improvement side because while launches were slated to happen, our second-generation process was not going to happen soon enough to where the customer would start feeling the competitive price pressure at the front end and would come back to us and ask us for a better generation process. So that we did and we did very effectively, Nitin, I can tell you, right? So much so that even in the last year, we've been able to support customers very effectively with second-generation processes. And as a result of that, our customers have not only retained their market share, but are likely to even grow that market share, which obviously means more business for us, okay? So that's on the R&D side. Coming to capacity and utilization, we had a lot of -- our capacities, by the way, are all fungible capacities. So they're all multi-purpose plants. But the 2 large plants had a lot of gaps in terms of our ability to debottleneck. And we did that again very effectively by debottlenecking a lot of products and we were able to increase capacity with a relatively small CapEx spend in the last 2 years and make both our bigger sites much more efficient in terms of being able to churn out more API. Bhavesh referred to that in terms of our FATR, and our FATR in the last 2 years also, 2.5, 3 years has also improved much better. And that we've done with the current capacities. The third thing that this team has done in the last 2.5 years is that we have sharpened our geographic focus to not only work in the regulated market space, which is our forte, I explained to Mr. Surajit earlier that we work in the regulated market space, and that's a pretty tough market to operate in, okay? It's not anybody's game, okay, to just get into a regulated market and operate that way. So the point is that while we continue to stay in the regulated market space, what we also identified is a lot of emerging markets are becoming more and more regulated. And that's where if we focus on those markets, markets like Brazil, Mexico, Taiwan, Korea, Russia, okay, we have a lot more business to take because the health authorities of those countries are becoming much, much more demanding and stringent in terms of data and our ability to satisfy those health authorities essentially means that we are then able to take more and more business with the customers in these markets. So I would say that all in all, this team has been there for 2.5 years, but has been extremely impactful in being able to not only impact the business today, but also have a very different trajectory for growth for this business in the next 5 to 7 years.

That's very helpful. Secondly, just taking off from there, I think earlier in your comments, you mentioned that you feel comfortable with 16 -- if I heard it right, 16% to 18% growth over a period of time. Now in terms of composition of that growth, see what we've seen historically in the listed companies that are there in the API business, a lot of the growth for companies historically has been on the legacy molecules and that's essentially continue to remain a mainstay for them going forward. Is this -- does the same way of growth [ constituents ] is going to look like? Or is it going to be -- or is there any -- how should we look at our growth sort of very broad breakout in terms of how it looks -- what will drive growth for us going forward?

Okay, Nitin. So see, the thing is that while -- like I said, we have a very deep portfolio, okay? And again, it's in a sort of non-commodity space, right? So we expect that even this base portfolio will have a pretty healthy growth just on the basis of the geographic expansion that I talked about. Having said that, though, right, we have newer molecules that are coming up. Every year, we are going to be introducing 3 to 4 molecules, right? And these will obviously drive growth, right, the newer molecules. Apart from that, what we are also doing is we will be introducing more complex molecules, not next year, but -- I mean next year, we'll be introducing 1. But then there will be a much more rapid introduction of more complex molecules, which are higher value molecules. So this is as far as the generic growth is concerned. Then we do have a CDMO driver, okay? And while it's small today, right, and it's got a relatively small base, the kind of -- the kind of portfolio overlap that we have with the current generic portfolio and the likely CDMO opportunities is pretty significant. And so we expect that the CDMO business will grow faster than the generic business. One is because it's smaller, right? But also because it's got a lot more potential, right? Because we are talking about a whole new set of customers now in the CDMO. So all this put together, I think, will help us to drive both the generic business as well as the CDMO business pretty smartly. So we have the base. We have the new molecules. On top of the new molecules, we have the complex molecules and then we'll have the CDMO growth as well. So all this put together, I think, is going to give us a pretty -- we've got many levers to pull as far as growth is concerned.

[Operator Instructions] The next question is from the line of Ashwini Agarwal from Ashmore Investments.

A couple of questions from my side. One is that when you were talking about and taking off from where Nitin was, when you're talking about 16% to 18% growth for the year, are you kind of implying that there is some large one-off component to growth in the first quarter? Or are you seeing pressure within given the kind of end product pricing pressures we are seeing especially in the U.S.?

Okay. So Ashwini, you have 2 questions, right? One is related to a one-off, right, that gives us a 32% growth, right? The other is pricing pressure, right? So let me take the first one first, right? So yes, this quarter, we had a significant sale of Favipiravir, okay? And so Favipiravir was quite significant. But even if I take Favipiravir away, right, we are still at around 27% growth, okay? So if I take away the effect of Favipiravir, right, in quarter 1 this year and quarter 1 last year, our growth on -- without -- ex Favi is around 27%. So that's still pretty significant, okay? Now having -- so that's one thing. Now yes, as far as the U.S. is concerned, right, there is pricing pressure, and it always is there. It's not something that we don't have to deal with. The good part about it is, again, it doesn't happen -- it doesn't happen uniformly across all the products at the same time. So while -- there you may have heard about the sartans, I mean, if you're following the space, right, the sartans have been under pressure, right? And we have also seen that price pressure. Now what happened for us, which is good, right, is that we introduced the second, third -- second-generation process for olmesartan pretty quickly, right? And we're able to move our customers to the next gen process. So while there is a bit of price pressure now, right, and a little bit of margin pressure also, right, the good part is that we were able to handle the margin pressure because we were also able to negotiate much better rates on our raw material prices and sort of handled that. But longer term, the customers have already taken up our new material to be able to qualify themselves. And then in a matter of another 3 to 6 months, they will move to the new gen process. And that would insulate us from this whole sartan story. And then the other thing is that we've got only 2 sartans really that we have to deal with. So we don't have a whole bunch of sartans there. But to address your larger question, do we deal with pricing pressure? We do, we do. And it's a pretty -- it's a pretty well-calibrated approach that we take, handling pricing pressure because we are ready with the second or sometimes even a third-generation process to be able to handle that.

Thank you for elaborating on that. And my second question is like, as you look forward, you spoke about CDMO, again in response to Nitin's question. How should we track this? I mean are there client engagements that are ongoing? When do you expect these relationships to [ justify ]? Will you be sharing with us on an ongoing basis what is your CDMO revenue component and as in when you sign any significant transaction?

See, Ashwini, at this point, right, I'm a little weary, frankly, of getting into a product level discussion on CDMO, right? Because it is pretty competitive space, right? And it won't take -- it won't take a long time for my competition to catch up with me in terms of which customers I'm dealing with. I mean in our CDMO business, right, we are focusing on end of life cycle management, right? So that has a pretty solid overlap with our portfolio, okay? So I mean, overall, you'd be able to see that we would be chasing quite a few opportunities with the big players, okay, in this business. Where we have to be extremely careful and guarded, right, is on the 505(b)(2) opportunities, right? Because they are pretty specialized opportunities. And they take a while to -- for that -- the gestation period from the time we start the project to when it becomes commercial is a sensitive period because basically, we've got to elevate the molecule to the customers' requirements, right, whether it's a different salt, whether it's freebase, whether it's some particular patent challenge that we are dealing with in order to circumvent and make sure that the customer is in a -- and us, of course, are in a safe zone. So at this point, Ashwini, I would say that we would be careful, right, and not share what is in the works, right? And I'm sure you will understand as an investor, as an analyst, you'll understand that this is something that we do need to be careful about. Coming to what is already commercial, right? I can share with you that, look, we have 4 projects today, right? 3 of them are already commercial, right? And we are generating significant revenues from these. Their growth is -- they are still growing, albeit at a lesser rate. A fourth project is going to get added in fourth quarter of this year. And that's going to be a significant project, which we are getting geared up to, to service in quarter 4 of this year. Okay, it may move to quarter 1 of next year, but we are keeping our fingers crossed because the customer is filing in multiple markets. So we expect that some commercial gain will start coming in quarter 4 of this year itself. So I think we can share that much, Ashwini. I hope that's something that's okay with you at this point.

The next question is from the line of Vikas Sharda from NTAsset.

One question on the margin side. So when I look at the first quarter and the fourth quarter of last year, the -- because now you have the quarterly financials reported, so these 2 quarters, your margins are higher than the full year average, which implies that the Q2 and Q3 last year were below full year average margins. So maybe you could touch base on what were the reasons for that? And secondly, it means how do you look at the volatility in margins in your kind of business? And I mean -- and what are the key reasons for that?

Okay, sure. So let me explain, right, how this whole margin game works, right? So it's -- so I'll take the second part of the question first, right? So basically, and that will explain the first part, too. But basically, what happens, right, is that we have a pretty distributed and diversified portfolio. So we've got more mature molecules, right, which, as a result of competitive pressure getting into next-generation processes, right, the margin profile tends to dip, okay? And -- but then what also happens is the business becomes more mature with less -- the competition easing out and so on. So we are dealing with molecules here, where we've got -- we are part of, I would say, the base. And these are molecules that we launched 3, 4, 5 years earlier, before that. So this forms the base, and the margin profile typically of these is lesser than our average margin profile. When you have the newer molecules that we introduced, right, and those typically tend to get us better margins because they are newer molecules, we are talking about a first-gen process. And then even the second-gen process takes care of protecting the margin significantly. So all -- so these 2 -- so this is the second lever that basically adds to a better margin profile, right? But then it's a newer business. And then this keeps sort of happening year-on-year, right, where we keep adding newer molecules. So molecules that are 3 to 4 years old typically get us better margins, okay? And then, of course, there is the CDMO business, right? And the CDMO business, right, typically has better margins than the generic business typically, right? And even if it doesn't start off with a better margin, eventually, we do get to a better margin because we work on the cost side, and we don't normally have to pass it on to the customer. So this is how the whole margin game works, okay? Coming to quarter 2 and quarter 3 of last year, we had -- I talked about Favipiravir in an earlier question where Favipiravir was a significant contributor last year and even in quarter 1 of this year, right? So what happened was in Favipiravir because it was a pandemic situation and we had to really aggressively introduce the API into the market, we did not go for any kind of margin play and basically offered the API at relatively subdued margins, okay, because the idea here was to scale up and basically give volumes to our customers, okay? And as a result of that, the volumes on Favipiravir or the volume -- the volumes gave us a better top line, but the -- because of this approach that we took, the margin profile because of Favipiravir of the overall business did dip in quarter 2 and quarter 3. In quarter 1 and quarter 4 of last year, right, we had less Favipiravir, and we also had a significant CDMO business in quarter 1 and quarter 4 of last year. So that basically these 2 reasons put together essentially gave us the kind of margin profile that you have seen where we had a much higher margin profile in Q1 and Q4, right, and a subdued margin profile in Q2 and Q3 of last year.

So does it mean that Favipiravir had negative impact in this quarter again on the margin?

Not negative, Vikas. I mean I would not say it was negative, right? But I mean...

Yes, I mean subdued.

Yes, it's less -- definitely, we are making good margins. But compared to our average margin, it's less, right?

Thank you very much. Ladies and gentlemen, due to time constraint, that will be the last question for today. On behalf of Glenmark Life Sciences Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.